KGI Securities (Singapore) Pte. Ltd. March 28, 2025

Q&M Dental Group Expands AI Solutions, Streamlines Operations for Improved Profitability

Expansion of AI Solutions Business

EM2AI, a 49%-owned associate of Q&M Dental, has secured regulatory licenses across multiple jurisdictions for its dental AI solutions. The company also signed a Memorandum of Understanding (MoU) with a regional dental solutions provider, enabling it to expand its footprint. With this collaboration, EM2AI is now set to provide its AI-powered dental solutions to over 1,100 clinics across the region, positioning the company for further growth. [[1]]

Increased Profitability Outlook

The company reported a strong improvement in profitability, with net profit margin (NPM) rising by 18.0% to S\$13.1 million in FY24. This was driven by cost-cutting initiatives, including the closure of underperforming clinics and the winding down of its medical laboratory business in September 2024 following the decline of COVID-related operations. Several expense categories declined year-over-year, reflecting the company’s effective streamlining efforts. We expect these efficiency gains to sustain profitability into the next financial year. [[1]]

Shareholder Returns

The Group announced an interim dividend of 0.70 Singapore cents per share for 2H24, bringing FY24 annual dividend to a total of 1.1 Scents, representing a dividend payout ratio of 71%. Additionally, the company plans to conduct share buybacks of up to 50 million ordinary shares, a move aimed at enhancing long-term shareholder value. [[1]]

Financial Performance

Q&M Dental Group reported revenue of S\$180.7mn for FY24, a 1.1% decline YoY, compared to S\$182.7mn in FY23, mainly due to the cessation of the Group’s medical laboratory business. PATMI rose by 27.1% YoY to S\$14.6mn in FY24, compared with S\$11.5mn in FY23. EPS rose to 1.55 Singapore cents in FY24, compared to 1.22 Singapore cents in FY23. [[1]]

Dental Business Segment

For the Group’s business segment, dental business revenue grew marginally to S\$173.8mn in FY24, up from S\$173.0mn in FY23, supported by higher contributions from its Malaysia operations. On the other hand, revenue from other businesses declined primarily due to the cessation of the Group’s medical laboratory business in September 2024. [[1]]

Valuation and Recommendation

We maintain an OUTPERFORM recommendation and keep our target price unchanged at S\$0.35, based on a Discounted Cash Flow (DCF) method with a terminal growth rate of 2% and a WACC of 9.0%. Q&M Dental Group’s resilient business, along with its investment into dental AI & technology, positions the company well for future growth and to capture the majority of dental services demand in its local and overseas markets. Our TP of S\$0.35 implies a 20.6% upside from its current share price. [[1]]

Risks

The company is exposed to currency translation risk, as it operates its business in several key markets such as Singapore, Malaysia, and China. [[1]]

Key Financials

YE Dec (S$’Millions) 2023 2024 2025F 2026F 2027F
Revenue 182.7 180.7 182.5 188.0 197.1
PATMI 11.5 14.6 17.9 18.3 20.3
EPS (cents) 1.2 1.2 1.3 1.3 1.3
EPS growth (%) -4.7% 5.0% 3.0% 3.0% 3.0%
DPS (Sing cents) 0.7 1.1 1.2 1.2 1.3
Div Yield (%) 2.3% 3.7% 3.9% 4.1% 4.3%
Net Profit Margin (%) 6.1% 7.2% 9.1% 8.8% 9.4%
Net Debt/ (Net Cash) Gearing (%) 93.6% 74.7% 59.6% 53.1% 45.3%
ROA (%) 4.3% 5.3% 6.5% 6.4% 7.0%
ROE (%) 10.8% 12.0% 14.5% 13.9% 14.8%
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